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According to the IRS you are a private contractor employed by Google

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Re: According to the IRS you are a private contractor employed by Google

#91

Post by ryanwaggoner »

camz wrote: post #89
ryanwaggoner wrote: post #85

Earlier quoted context omitted.

Agreed, and I've always done my own taxes, despite having investment real estate and businesses in different states. However, I finally hired a CPA just to look at my stuff and ensure I'm doing things right.

I think that was probably the smart decision. Learning on your own and then paying an accountant to review your conclusions is very cost effective and it'll definitely pay-off in the long term. If you ever have a question, feel free to shoot me an email. =)

That's really generous, thanks!

Re: According to the IRS you are a private contractor employed by Google

#92

Post by presto8 »

arron61 wrote: post #37

You should have sought for a professional tax preparer's advice. Any professional would have seen your mistake immediately. You have your regular w2 form's amount from work. Any additional money you tacked on as additional income, the tax professional would have questioned where this extra money is coming from. He or she would have identified that you got extra money as a business (you do not need a business license)…

Turbo Tax is also an option. It correctly handles this sort of income.

Re: According to the IRS you are a private contractor employed by Google

#93

Post by ars »

camz wrote: post #81
ars wrote: post #69

Earlier quoted context omitted.

Is you do incorporate you will need to pay corporate taxes, in addition the corporation will need to pay the employer portion of the SE tax. (So you don't pay it, the corporation does, and since they need to pay it they reduce your salary by that much, i.e. it's a wash.) Becoming a corporation will not reduce your taxes, but it will significantly increase the complexity. The main benefit it liability, not financial.

If you create an S-Corp then you wouldn't pay corporate tax since an S-Corporation is a passthrough entity. Legally you are protected and tax-wise you only pay on the 1040, but you avoid SE Tax. I could point you to a number of resources to clarify the issue, if your interested?

I am interested. I believe you about the corporate taxes, but I have a hard time believing you are able to avoid the SE tax.

On way or another the full 15.3% social security tax is going to be paid.

Re: According to the IRS you are a private contractor employed by Google

#94

Post by ars »

Locke1689 wrote: post #83
ars wrote: post #70

Earlier quoted context omitted.

I assume he wants consumption (i.e. sales or vat tax) instead of income tax. Google "fair tax" for one such proposal.

This doesn't seem to make sense to me as it almost seems a reverse progressive tax. People earning just enough to get by will be spending almost 100% of their income on goods, thus having a very high VAT tax as a proportion of their income, while people in the very high income brackets tend to spend far less on actual "goods" as a percentage of their income. My family, for example, puts far more money in the stock ma…

Eventually the money gets spent. Might not be right away, but eventually. You have to tax services as well for it to work though.

Re: According to the IRS you are a private contractor employed by Google

#95

Post by Locke1689 »

ars wrote: post #94
Locke1689 wrote: post #83

Earlier quoted context omitted.

This doesn't seem to make sense to me as it almost seems a reverse progressive tax. People earning just enough to get by will be spending almost 100% of their income on goods, thus having a very high VAT tax as a proportion of their income, while people in the very high income brackets tend to spend far less on actual "goods" as a percentage of their income. My family, for example, puts far more money in the stock ma…

Eventually the money gets spent. Might not be right away, but eventually. You have to tax services as well for it to work though.

Uhh, why would it eventually get spent? My inheritance is probably going to be very high.

Re: According to the IRS you are a private contractor employed by Google

#96

Post by wisty »

mechanical_fish wrote: post #88
adolph wrote: post #78

Earlier quoted context omitted.

The author indicates that taxes were paid, just the wrong style of taxes: I had been declaring that ad revenue as "extra income" and dutifully paying my taxes on it. Suddenly last year the IRS informed me I owed them scads of money that I didn't have. Still, it's nice to know the IRS has time and resources to squeeze both me AND the guys who brought down Wall Street. Oh, wait, those guys are still swilling Chivas in…

It's an easy mistake to make. I know someone who did this very thing. It's true that American education does a pitiful job of impressing upon the average citizen that (a) accountants rule the world ; (b) you should therefore take a basic accounting class, and/or pay attention to the words in those IRS instructions that the government carefully mails to you every year; and (c) you should talk to an accountant for an h…

Talking to an accountant isn't expensive. It's just a task which people think of as unpleasant. It's kind of like somebody moping about how they need to pay $500 for dental work, because they didn't visit a dentist when the problem was easily fixed.

Re: According to the IRS you are a private contractor employed by Google

#97

Post by camz »

ars wrote: post #93
camz wrote: post #81

Earlier quoted context omitted.

If you create an S-Corp then you wouldn't pay corporate tax since an S-Corporation is a passthrough entity. Legally you are protected and tax-wise you only pay on the 1040, but you avoid SE Tax. I could point you to a number of resources to clarify the issue, if your interested?

I am interested. I believe you about the corporate taxes, but I have a hard time believing you are able to avoid the SE tax. On way or another the full 15.3% social security tax is going to be paid.

Hey ars, well the best way to explain the concept is to think about how you are taxed on dividends. When you buy stock in Google and receive dividends, you would pay tax on that income on your 1040, but it would not be taxed as a "self-employment income" and thus SE Tax is not levied.

An S-Corporation is a standard C-Corporation that has elected for special treatment. Instead of paying double taxation, its income is directly passed-through to the taxpayer. But, that does not change the character of the income. The income is still considered a "corporate distribution" or a dividend. Thus, it cannot be cannot be taxed under SE Tax rules because a dividend is not "self-employed income."

This rule is found at IRC § 1368 (c)(2) :

In the case of a distribution described in subsection (a) by an S corporation which has accumulated earnings and profits—

      1368(c)(1) Treatises Accumulated adjustments account.
      That portion of the distribution which does not exceed the accumulated adjustments account shall be treated in the manner provided by subsection (b) . 

      1368(c)(2)Dividend.
      That portion of the distribution which remains after the application of paragraph (1) shall be treated as a dividend to the extent it does not exceed the accumulated earnings and profits of the S corporation. 

      1368(c)(3)Treatment of remainder.
      Any portion of the distribution remaining after the application of paragraph (2) of this subsection shall be treated in the manner provided by subsection (b) .
But, note that you must pay a reasonable salary to yourself first to apply this tax strategy or plan. There are certain pitfalls that you must be aware of as with any tax plan.

I hope that this has been helpful! =D

Re: According to the IRS you are a private contractor employed by Google

#98

Post by kablamo »

mechanical_fish wrote: post #75
DanielBMarkham wrote: post #10

I'm always amazed, when the-tax-system-sucks posts come up on HN, how quickly most commenters are to trash the author and/or lecture the complainer on how wrong they are. There is a impedance mismatch at work in our system of governance that's not going away any time soon. The government makes laws by sticking people into little boxes and making rules for those boxes. This system of boxes and rules -- the tax code --…

We have this word "business" which has some kind of vague meaning, so we attach a bunch of rules to the abstraction... It isn't quantum mechanics. The rules which the OP professes not to understand boil down to this: 1) Everyone owes income taxes and Social Security/unemployment ("FICA") taxes on all of their income. To restate this in a fun but cartoony way: everyone is a "business". [1] No philosophical debate nece…

I disagree. taxes don't need to be complex. here in singapore they are much simpler. for years it was done on a post card.

your programmer analogy is interesting. the problem with democracy is you are always mending a legacy system. you can never start over because of existing special interests who are benefitting. this feature provides stability. but it also means no chance for real innovation. all democracies have this problem of spaghetti code laws. places with less democracy can innovate -- places like singapore. obviously there are some draw backs to less democracy. but there can be benefits too

Re: According to the IRS you are a private contractor employed by Google

#99

Post by poet »

smokeyj wrote: post #51
earl wrote: post #49

Earlier quoted context omitted.

Come on, your post is stupid on it's face. If a high quality of living is enabled by technology and innovation, said technology and innovation is enabled by stuff the government does -- a huge quantity of technology has it's roots in US government spending, and education is one of the 3 big things that states spend money on. Further, you conflate taxation laws and laws that prohibit things, eg "trading with each othe…

And you know where the U.S gets those gobs of cash to throw at building new technology? The markets of course! Governments need a marketplace, the marketplace doesn't need the government. The internet is largely unregulated, but we use creative solutions to overcome barriers, and this should be a model for other industries as well. A market solution is always better than a government solution, because with the first…

The richest man in Rome once said that you can't consider yourself truly rich unless you can afford your own private army. ;) Even more interesting is the fact that Crassus acquired his wealth by (1) declaring rich people enemies of the state and seizing their assets and (2) purchasing houses that were burning down and then putting out the fire with his own men. Unless you're an anarcho-capitalist, you'll certainly recognize that a representative government is necessary to put a stop to such behaviors.

Re: According to the IRS you are a private contractor employed by Google

#100

Post by ars »

Locke1689 wrote: post #95
ars wrote: post #94

Earlier quoted context omitted.

Eventually the money gets spent. Might not be right away, but eventually. You have to tax services as well for it to work though.

Uhh, why would it eventually get spent? My inheritance is probably going to be very high.

And what are you going to do with the money?

You'll spend some, invest some, etc. You'll also have kids, so even if you save it all, it'll get divided amongst more and more people.

Or you'll give it all away to charity.

Just look historically - are they any wealthy families that kept all the money in the family and never spent it?

I don't think there are any that even lasted 3 generations before it was spent or diluted among many children.

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